Rand Rebounds From Six-Year Low After Biggest Slump Since 1994

By Garth Theunissen

Oct. 16 (Bloomberg) -- South Africa's rand rebounded from its weakest in more than six years against the dollar on speculation yesterday's loss, the biggest since at least the end of apartheid in 1994, was exaggerated.

The rand surged the most today in 23 years versus the U.S. currency after its 14-day relative strength index, a technical chart used by traders, climbed to as high as 81. A reading above 70 indicates it has weakened too much. Earlier the rand slipped to the lowest level since August 2002 as Asian and European equities tumbled on concern a global economic recession will erode demand for the country's commodity exports.

``The rand has fallen too much, too fast,'' said Jim Bryson, head of foreign exchange trading in Johannesburg at Rand Merchant Bank. ``You'd expect it to come back, because after a fall like that exporters start repatriating foreign earnings.''

The rand rose as much as 7.6 percent to 9.8343 per dollar, the biggest one-day gain since December 1985, according to Bloomberg data, and was at 10.1550 by 1:25 p.m. in Johannesburg. It advanced versus all 16 most-actively traded currencies monitored by Bloomberg, adding 4.2 percent to 13.7253 per euro.

South Africa's currency plunged as much as 18 percent versus the dollar late yesterday as U.S. stocks dropped by the most since the crash of 1987, sparked by the biggest slowdown in retail sales in three years.

`Irrational Panic'

``The rand's volatility reflects the irrational panic that has taken hold in global markets,'' said Elisabeth Gruie, an emerging-markets currency strategist in London at BNP Paribas SA, France's biggest bank. ``For the moment it's in a recovery phase after an extreme move yesterday. The abruptness of the rand's move yesterday was quite shocking.''

The currency fell more than 15 percent versus the euro yesterday, extending its annual loss to about 36 percent. It has declined 46 percent against the dollar this year.


``This was an unbelievable blowout,'' said Marc Copeland, a Cape Town, South Africa-based currency trader at Investec Asset Management, which oversees about $60 billion. ``Investors are scrambling for money, they have been hurt everywhere around the world and they are getting out of these emerging markets because they are too risky.''

The prospect of a global economic slowdown has prompted investors to dump higher-yielding assets, hurting emerging-market currencies from Brazil to South Korea even as policy makers in Europe and the U.S. pump money into financial markets to alleviate the worst banking crisis since the Great Depression.

`Caught the Flu'

``With emerging markets under pressure, while everyone else is coughing we've caught the flu,'' said Bryson. ``It's going to be a wild day.''

The rand may ``retest today's lows, or fall to at least 10.60 to the dollar,'' if it moves above 10.10 per dollar again, Bryson said. ``The speed of the move makes it difficult to call. It will continue to trade with extreme volatility.''

Stocks fell around the world, with Europe's Dow Jones Stoxx 600 Index losing 3 percent and the MSCI Asia Pacific Index dropping 8.5 percent, the biggest drop on record. South Africa's FTSE/JSE Africa All Share Index slipped as much as 2.5 percent.

``South Africa is a victim of a severe weakening in risk appetite, which is prompting investors to unwind their positions in emerging market assets,'' said Esther Law, an emerging-markets strategist in London at Royal Bank of Scotland Plc. ``Investors are getting out of high-yielding assets as fears of slower economic growth begins to overtake concerns about the global financial crisis.''

Platinum Slumps

The prices of commodities, which South Africa relies on for export income, declined. The UBS Bloomberg Constant Maturity Commodity Index of 26 raw materials fell 1.3 percent, extending yesterday's 4.7 percent slide. Platinum, which competes with gold as South Africa's biggest export, slipped as much as 7.1 percent today.

Government bonds slumped, with the yield on South Africa's benchmark 13.5 percent security due September 2015 climbing 28 basis points to 9.29 percent. The yield on the 13 percent note maturing in August 2010, which is more sensitive to interest-rate expectations, rose 32 basis points to 9.52 percent. Yields move inversely to bond prices.

The weakening rand is clouding the inflation outlook in South Africa, Tito Mboweni, the country's central bank governor, said late yesterday in a speech in the capital, Pretoria. ``It's a terrible situation to be in,'' he said.

To contact the reporters on this story: Garth Theunissen in Johannesburg gtheunissen@bloomberg.net